Homebuilder Confidence in U.S. Increases More Than Forecast

Photographer: Andrew Harrer/Bloomberg

Builders started work on 780,600 homes last year, a 28 percent increase from 2011 and the most in four years. Close

Builders started work on 780,600 homes last year, a 28 percent increase from 2011 and... Read More

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Photographer: Andrew Harrer/Bloomberg

Builders started work on 780,600 homes last year, a 28 percent increase from 2011 and the most in four years.

Homebuilder confidence in the U.S. rose more than forecast in July to the highest since January 2006 as companies grew more upbeat about sales prospects.

The National Association of Home Builders/Wells Fargo index of builder sentiment climbed to 57 this month from a revised 51 in June, the Washington-based group reported today. The reading surpassed all but one forecast in a Bloomberg survey of 49 economists. The gauge has climbed 13 points in the latest two months, the biggest back-to-back advance since January-February 1992.

A pickup in builder optimism about the sales outlook shows an increase in mortgage rates in the last two months is having a limited effect on the housing market. Further gains in residential construction would help underpin the world’s largest economy after a slowdown in the first half of the year.

“You’re seeing a significant pickup in demand for new residential dwellings,” said Brian Jones, senior U.S. economist at Societe Generale in New York. His forecast of 55 was the most accurate in the Bloomberg survey. “Mortgage rates are moving higher and pulling people in. And I think that in general, the economy is getting better.”

Builder shares rallied after the figures. The Standard & Poor’s Supercomposite Homebuilding Index, which includes D.R. Horton Inc. and PulteGroup Inc., advanced 0.9 percent at 11:12 a.m. in New York. The S&P 500 fell 0.3 percent to 1,677.35.

Estimates in the Bloomberg survey for the homebuilder index ranged from 48 to 60 after a previously reported 52 in June. Readings above 50 mean more respondents said conditions were good.

Survey Components

The confidence survey asks builders to characterize sales as good, fair or poor and to gauge prospective buyers’ traffic. It also asks participants to assess the six-month outlook.

All of the homebuilder survey’s three components climbed. The group’s gauge of the sales outlook for the next six months rose to 67 in July, the highest since October 2005, from 60 in the prior month.

A gauge of prospective-buyer traffic climbed to 45 this month from 40. The group’s index of current single-family home sales increased to 60 in July from 55.

“Builders are seeing more motivated buyers coming through their doors as the inventory of existing homes for sale continues to tighten,” David Crowe, the group’s chief economist, said in a statement. “As the infrastructure that supplies home building returns, some previously skyrocketing building material costs have begun to soften.”

Pre-Recession

The NAHB index, first published in January 1985, reached a record low of 8 in January 2009. It averaged 54 in the five years leading to the recession that began in December 2007, and July was the first month since the downturn started that it has surpassed that mark.

Builder confidence improved in each of the four U.S. regions. A gauge of sentiment in the West climbed to 62 in July from 50, and confidence in the Midwest advanced to 62 from 55 in June. In the South, the index rose to 54 from 52, and 41 from 38 in the Northeast.

A recent pickup in mortgage rates could be spurring buyers to enter the market to avoid even higher interest costs.

The average rate for a 30-year fixed mortgage climbed to 4.51 percent in the second week of July, the highest level in about two years, McLean, Virginia-based Freddie Mac said in a statement. The rate reached an all-time low of 3.31 percent in November.

Lennar Corp. (LEN)

Builders such as Lennar Corp. have had their hands full trying to keep pace with the growing appetite for new homes.

“The overriding driver of recovery in the housing market remains the under-production of both single and multifamily product throughout the economic downturn and up to and including this year,” chief executive officer Stuart A. Miller said in a June 25 conference call. “While production continues to lag the need, we are experiencing supply shortages against a growing demand.”

Builders started work on 780,600 homes last year, a 28 percent increase from 2011 and the most in four years. Figures tomorrow may show housing starts increased to a 960,000 annual pace in June from a 914,000 rate a month earlier, economists surveyed by Bloomberg forecast prior to the Commerce Department to report.

New-home sales in May climbed to the highest level since July 2008, while the median selling price increased 10.3 percent from the same month last year.

“It’s definitely in recovery mode,” Scott Brown, chief economist for Raymond James and Associates Inc., said before today’s report. Higher home prices are “very helpful in terms of the wealth effect on spending. Consumers are going to feel more confident.”

To contact the reporter on this story: Jeanna Smialek in Washington Jsmialek1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net.

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